Index for assessing discount potential

ABSTRACT

A computerized system and method of calculating a discount index value for a supplier can include receiving information related to a plurality of discount leverage factors for the supplier, calculating a discount index value for the supplier based on the information related to the discount leverage factors, receiving information related to an actual discount event for the supplier, recalculating the discount index value for the supplier based on the discount leverage factors and the information related to actual discount events, and displaying the discount index value for the supplier. The system and method can also include placing the discount index value on a discount index scale, defining a plurality of discount leverage regions on the discount index scale, and attributing a leverage value to the supplier based on the proximity of the discount index value to one of the discount leverage regions.

BACKGROUND OF THE INVENTION

1. Field of the Invention

Embodiments of the invention relate to the assessment of discountpotential, and more particularly, to the assessment of discountpotential from suppliers, to allow buyers to capitalize on the discountpotential of vendor payment terms.

2. Description of the Related Art

In industry today, companies tend to use a large number of suppliers toprovide goods and services that, in turn, allow the companies to providethe goods and/or services that they provide to their customers.

In the financial transactions between companies (buyers) and suppliers,special payment terms are often negotiated. These payment terms ofteninclude special pricing discounts, and/or discounts for early payment.

Companies have found that great economic gains can be obtained bynegotiating beneficial payment terms with suppliers. Due to thedifferent circumstances of different suppliers, however, greaternegotiating potential may exist with certain suppliers over othersuppliers. In addition, because a large company may deal with hundredsor thousands of suppliers, most companies only have time and resourcesto pursue negotiations with a small subset of their entire base ofsuppliers.

For these reasons, there is a need for an automated, quick and efficientmanner of determining with which suppliers to pursue discountnegotiations, and how aggressively to pursue those negotiations.

Accordingly, there exists a need in the art for improved systems andmethods for assessing discount potential of suppliers.

SUMMARY OF THE INVENTION

Embodiments of the invention solve these and other needs by providingimproved systems and methods for assessing discount potential.

Embodiments of the invention are directed to a computerized system andmethod of calculating a discount index value for a supplier and caninclude receiving information related to a plurality of discountleverage factors for the supplier, calculating a discount index valuefor the supplier based on the information related to the discountleverage factors, receiving information related to an actual discountevent for the supplier, recalculating the discount index value for thesupplier based on the discount leverage factors and the informationrelated to actual discount events, and displaying the discount indexvalue for the supplier.

The system and method can also include placing the discount index valueon a discount index scale, defining a plurality of discount leverageregions on the discount index scale and attributing a leverage value tothe supplier based on the proximity of the discount index value to oneof the discount leverage regions.

The system and method can also include receiving information related toa plurality of discount leverage factors for each of the suppliers,calculating a discount index value for each of the suppliers based onthe information related to the discount leverage factors, receivinginformation related to an actual discount event for each of thesuppliers, and recalculating the discount index value for each of thesupplier based on the discount leverage factors and the informationrelated to actual discount events.

The discount leverage factors can include one or more of a supplierfinancial risk, a spend leverage, a cost of capital differential betweensupplier and buyer, a supplier Days Payable Outstanding (DPO)(the numberof days, on average, a business takes to pay its accounts payable),supplier size, and supplier industry.

A computerized system in accordance with embodiments of the inventioncan include a transaction database, for storing information related todiscount events, a supplier data database, for storing informationrelated to supplier business information, a buyer supplier informationdata database, for storing buyer information related to suppliers, abuyer capital database, for storing information related to the buyer'scost of capital, a discount factor database, for receiving informationfrom a transaction database, the supplier data database, the buyersupplier information data database, and the buyer capital database, adiscount calculation module, for receiving information from the discountfactor database and calculating discount index values for suppliers, anda display module for displaying the calculated index values.

BRIEF DESCRIPTION OF THE DRAWINGS

Objects and advantages of the invention will become apparent uponconsideration of the following detailed description, taken inconjunction with the accompanying drawings, in which like referencecharacters refer to like parts throughout, and in which:

FIG. 1 is a flow diagram illustrating a method for calculating adiscount index, in accordance with embodiments of the invention;

FIG. 2 is a high-level schematic diagram illustrating a system forcalculating a discount index, in accordance with embodiments of theinvention;

FIG. 3 is a chart illustrating several index factors, and their relateddescriptions, in accordance with embodiments of the invention;

FIG. 4 is a visual depiction of a discount index, in accordance withembodiments of the invention; and

FIG. 5 is a visual depiction of a discount index, including severalexemplary discount programs, in accordance with embodiments of theinvention.

It is to be understood that the above-mentioned drawing figures areprovided solely to assist in describing the concepts of the presentinvention and may not be to scale, and are certainly not intended to belimiting in terms of the range of possible shapes and proportions wellwithin the scope of embodiments of the invention.

DETAILED DESCRIPTION

Embodiments of the invention allow a company to understand wherediscounts can be realized across corporate spend categories, such as,for example, which suppliers, which pay groups and which spendcategories can have realized discounts.

Embodiments also facilitate a company determining the relative rates atwhich discounts can be obtained in different categories, so thatdiscount capture can be maximized.

These relative rates are calculated in view of discount leverage. Asused herein, discount leverage is the relative power a company (buyer)has over a supplier in negotiating early payment and/or other discounts.By way of embodiments of the invention, this discount leverage andpotential can be automatically and quantitatively determined, based onempirical data and correlation of past information related to discounts.

With reference to FIG. 1, there is shown a flow diagram illustrating amethod 100 for calculating a discount index, in accordance withembodiments of the invention.

In accordance with the method 100, first, in step S102, informationrelated to discount leverage factors is received. Next, in step S104, adiscount index is calculated based on the received discount leveragefactors. In step S106, information from actual discount events isreceived. Next, in step S108, the discount index for a supplier isrecalculated based on the original discount leverage factors, and theinformation from actual discount events.

Some or all of the steps can be performed in an automated manner by wayof a microprocessor based device or devices, including one or morepersonal computers, servers, handheld devices, such as a personaldigital assistants (PDA), wireless devices, and/or other devices nowknown, or later developed.

With reference to FIG. 2, there is shown a high-level schematic diagramillustrating a system 200 for calculating a discount index, inaccordance with embodiments of the invention.

The system 200 can include a transaction database 204, for storinginformation related to discount events, a supplier data database 202,for storing information related to supplier business information, abuyer supplier information data database 208, for storing buyerinformation related to suppliers, and a buyer capital database 210, forstoring information related to the buyer's cost of capital.

Typically, information from supplier data database 202 is obtained fromthird-party providers, such as are DUN & BRADSTREET, as well as otheraggregators of financial and business information. Information stored attransaction database 204 is obtained primarily from historicalinformation regarding transactions and invoices related to a supplier.Typically, information from the buyer supplier information database 208and buyer capital database 210 will be obtained and stored by the buyer.

A discount factor database 206, receives and stores information from thetransaction database 204, the supplier data database 202, the buyersupplier information data database 208, and the buyer capital database210.

A discount calculation module 212 receives information from the discountfactor database 206, and calculates discount index values for suppliers.A display module 214 displays the calculated index values from thediscount calculation module 212. The index values, and other values, canbe displayed in a concrete, tangible and useful format, as is known tothose of skill in the art. The values can be displayed on, by way ofnon-limiting example, on a video monitor, or as part of a paperprintout, as well as in other manners now known, or later developed.

Personnel at, for example, an accounts payable department of the buyer,can use the calculated index values for suppliers to selectively andefficiently negotiate beneficial terms with suppliers.

In addition to display module 214, information from the discountcalculation module 212 can also be sent to one or more of a pay nowmodule 216, a supplier discount select module 218, and a vendornegotiation module 220, each of which facilitate the selection ofpayment terms. The pay now module 216 can provide for an invoice thatincludes a “pay now” option, with specific payment terms listed inaccordance with an immediate and quick payment. The discount selectmodule 218 can alert a supplier when an invoice has been approved, andthen provide several sets of payment terms from which the supplier canchoose to be paid. The vendor negotiation module 220 facilitates a backand forth negation of payment terms, based on the output of the discountcalculation module 212. Discount data related to the output of thediscount calculation module is fed back to the transaction database 204,so that historical information can be used to revise or modify (i.e.,tune) the discount calculations. In some embodiments, such revision caninclude statistical analysis methods, as known to those of skill in theart.

Each of the pay now module 216, supplier discount select module 218 andthe vendor negotiation module 220 can include a computerized system,including a microprocessor, a display device, a data input device, and amemory storage device. Each of the pay now module 216, supplier discountselect module 218 and the vendor negotiation module 220 can displaypertinent discount information, as described above, to a supplier and/orbuyer, and allow for certain selections of discount term information bya supplier and/or buyer. Discount information generated from discountcalculation module 212, as well as addition discount selectioninformation, can be stored by the pay now module 216, supplier discountselect module 218 and the vendor negotiation module 220, and transmittedbetween a supplier and a buyer.

System 200 can also contain forecasting module 222. Forecasting module222 receives discount information from discount calculation module 212.Discount forecasting module 222 can also receive historical and realtime economic data, such a foreign and domestic financial data, tradinginformation, and business sector information. By correlating thisinformation with information from discount factor database 206,forecasting module 222 can forecast future discount levels to facilitatethe financial planning of the buyer. In some embodiments, forecastingmodule 222 can use statistical forecasting techniques, as are known tothose of skill in the art. Armed with information related to futurediscounts, a buyer can make better use of its resources than a buyerwith just current discount information.

With reference to FIG. 3, there is shown a chart 300 illustratingseveral index factors, and their related descriptions, in accordancewith embodiments of the invention.

Chart 300 depicts various index factors 302, and their relevantdescriptions 304. The index factors can include supplier financial risk,spend leverage, the cost of capital differential between the supplierand the buyer, the supplier DPO, the supplier size, and the industrythat the supplier is in.

Each of these index factors has relevance to the relative negotiatingpostures of the buyer and the supplier. For example, with supplierfinancial risk, the higher the financial risk score, the higher thelikelihood the company needs cash and the higher the likelihood ofdiscount leverage. With regard to spend leverage, the higher the buyer'sspend is as a percentage of supplier revenue, the higher the likelihoodof discount leverage.

With regard to the cost of capital differential between the supplier andthe buyer, the bigger the difference in cost of funds between the buyerand supplier, the higher the likelihood of discount leverage. As for thesupplier DPO, the longer the actual time to pay the supplier, the higherthe likelihood of discount leverage. In many cases, the actual DPO maybe longer than the negotiated term. With regard to supplier size, thesmaller the supplier in terms of revenue, the more likely the discountleverage. And finally, with regard to the specific industry of thesupplier, the more cash poor and cyclical the industry, the higher thelikelihood of discount leverage.

The discount leverage index value (DLIV) can be calculated by way of adiscount leverage index function. An exemplary function can be:DLIV=f(SERscore,SpendLeverage,SupplierSize,SupplierDPO,Industry)

Where:

SERscore is the Dun & Bradstreet (D&B) score that assesses financialstress;

SpendLeverage is the buyer's spend as a percentage of supplier revenue;

SupplierSize is the annual revenue of the supplier;

SupplierDPO is the disburser's average time to pay the supplier; and

Industry is the supplier's industry, categorized based on, for example,industry SIC (Standard Industrial Classification) or NAICS (NorthAmerican Industry Classification System) code. In some embodiments, thevariables can be equally weighted. In other embodiments, differentvariables can have different weights, based on a perceived value, as amatter of application specific design choice.

With reference to FIG. 4, there is shown a visual depiction of adiscount index 400, in accordance with embodiments of the invention. Theindex 400 is divided into a number of segments 402 on a scale. The scaleranges from lowest leverage to highest leverage.

By way of non-limiting example, a large medical device supplier with alow SERscore, a low SpendLeverage, and 30 day SupplierDPO might have adiscount leverage index value of 2. A small maintenance supplier with ahigh SERscore, a high SpendLeverage, and 75 day SupplierDPO might have adiscount leverage index value of 9. Similarly, a laboratory servicessupplier with a medium SERscore, high SpendLeverage and 45 day SupplierDPO might have a discount leverage index value of 5. These values wouldthen be used to guide the buyer as to with which organizations to pursuediscounts, and at what levels.

With reference to FIG. 5, there is shown a visual depiction of adiscount index 500, including several exemplary discount programs, inaccordance with embodiments of the invention. As with index 400discussed above, the index 500 is divided into a number of segments 502on a scale. The scale ranges from lowest leverage to highest leverage.Different discount programs can be assigned to ranges within the indexscale, with the most aggressive discounts being sought for the suppliersin the highest discount leverage categories.

Exemplary discount programs can include a conservative 18% APR 1% 10 Net30 for suppliers over which the company has the lowest leverage, amoderate 36% APR 2% 10 Net 30 for suppliers over which the company hasmoderate leverage, and an aggressive 43% APR 3% 5 Net 30 for suppliersover which the company has the highest amount of leverage. As is knownto those of skill in the art, a discount program of 18% APR 1% 10 Net30, signifies a payment arrangement where full payment is required ifthe buyer pays in 30 days, but a 1% discount is given if the buyer paysin 10 days. The 18% signifies the Annual Percentage Rate for the terms,which is the periodic rate times the number of periods in a year.

Thus, by way of embodiments of the invention, a discount leverage indexcan be developed that can help buying companies or organizations betterunderstand potential discounts across their corporate spend. Thecompanies' resources can then be efficiently deployed to generate costsavings through targeted negotiations of discount rates from suppliers.

In certain embodiments of the invention, all of the steps of the methodcan be performed by a computer, or computerized system, as describedabove. In alternative embodiments, one or more of the steps can beperformed manually, by a person.

In alternate embodiments of the methods described herein, additionalsteps may be added, certain steps may be excluded, certain steps may beperformed multiple times, and/or the steps may be performed in adifferent order and/or simultaneously.

One skilled in the art will appreciate that the invention can bepracticed by other than the described embodiments, which are presentedfor purposes of illustration and not by way of limitation. Variousarrangements of the described embodiments can be made by those skilledin the art without departing from the spirit and scope of the presentinvention, which is limited only by the claims that follow.

What is claimed is:
 1. A computerized method comprising: receiving, by acomputer, information related to a plurality of discount leveragefactors of the supplier, wherein the plurality of discount leveragefactors are representative of a negotiating position of the supplierrelative to the customer, and wherein the discount leverage factorscomprise one or more of: a supplier financial risk, a spend leverage, acost of capital differential between supplier and buyer, a supplier DaysPayable Outstanding (DPO), supplier size, or supplier industry;calculating, by the computer, a discount index value of the supplierbased on the information related to the discount leverage factors,wherein the discount index value represents a score on a discount indexscale comprising the plurality of discount leverage regions;identifying, by the computer, a discount program representing thediscount potential of the supplier based on the proximity of thediscount index value to one of the plurality of discount leverageregions; receiving, by the computer, information related to an actualdiscount event of the supplier; recalculating, by the computer, thediscount index value of the supplier based on the discount leveragefactors and the information related to the actual discount event; anddisplaying, by the computer, the recalculated discount index value ofthe supplier.
 2. The method of claim 1, further comprising: attributing,by the computer, a predefined discount program to each of the discountleverage regions.
 3. The method of claim 1, further comprising:receiving, by the computer, second information related to a plurality ofdiscount leverage factors of a second supplier; calculating, by thecomputer, a second discount index value of the second supplier based onthe information related to the discount leverage factors; identifying,by the computer, a discount program representing a discount potential ofthe second supplier based on the proximity of the discount index valueto one of the plurality of discount leverage regions; receiving, by thecomputer, information related to an actual discount event of the secondsupplier; recalculating, by the computer, the second discount indexvalue of the second supplier based on the second information related tothe discount leverage factors and the second information related to theactual discount event; and displaying, by the computer, the seconddiscount index value of the second supplier.
 4. A computerized methodcomprising: receiving, by the computer, information related to aplurality of discount leverage factors of the suppliers, wherein theplurality of discount leverage factors are representative of anegotiating position of each of the plurality of suppliers relative to acustomer, and wherein the discount leverage factors comprise one or moreof: a supplier financial risk, a spend leverage, a cost of capitaldifferential between supplier and buyer, a supplier Days PayableOutstanding (DPO), supplier size, or supplier industry; calculating, bythe computer, a discount index value of each of the plurality ofsuppliers based on the information related to the discount leveragefactors, wherein the discount index value represents a score on adiscount index scale comprising the plurality of discount leverageregions; identifying, by the computer, a discount program representingthe discount potential of each of the plurality of suppliers based onthe proximity of the discount index value to one of the plurality ofdiscount leverage regions; receiving, by the computer, informationrelated to an actual discount event of each of the plurality ofsuppliers; recalculating, by the computer, the discount index value ofeach of the plurality of suppliers based on the discount leveragefactors and the information related to the actual discount event; anddisplaying, by the computer, the recalculated discount index value ofeach of the plurality of suppliers.